28 Apr How Harvey has impacted the industrial real estate market – Houston Business Journal
Watching coverage of Hurricane Harvey from afar, many people’s perception was that the entire city of Houston was severely damaged. Indeed, thousands of Houston homes were flooded; some Houstonians are still displaced from their domiciles, and it’s nearly impossible to overstate the breadth of the devastation.
However, most commercial real estate, particularly in the industrial sector, was unscathed by the storm.
“Commercial real estate, in general, wasn’t affected that much by the hurricane,” said Travis Land, a partner with NAI Partners and the SIOR Houston/Gulf Coast Chapter president. “The majority of the damage and the people affected were residential real estate comprising of apartments and single-family house.”
While retail centers in several neighborhoods and office buildings in the vicinity of Buffalo Bayou were damaged by the flooding, industrial received the least amount of damage, Land said. “A lot of industrial buildings are dock-high. They’re four feet off the ground. An area would have had to really flooded to affect the interior of a dock-high building.”
Bill Ginder, senior vice president, brokerage services at Caldwell Companies and SIOR member, added that in terms of commercial real estate, “it was almost like Harvey had little impact. The industrial market was booming before Harvey, and it hasn’t slowed down a lick. We’re about 95 percent occupied. There are a lot of buildings going up. Obviously, they were delayed with the rain, but they’re absorbing space just about as fast they can build it.”
According to Land, both the industrial sector’s vacancy and rental rates have remained steady since the day the Category 4 storm hit Houston.
Ironically, natural disasters often result in a boom for local economies, as has been the case for Houston after Harvey. The commercial real estate market has been among the beneficiaries.
“When you have this many single-family dwellings flooded, people have to replace a lot of stuff. On the industrial side, a lot of my distribution clients that handle things from carpet to tile to furniture to mattresses to anything you could think of that would go into a home – they’re all looking for expansion space,” Ginder explained. “If you’re in the construction or building materials business, you’re busy.”
In fact, changing oil prices have had a more significant impact on commercial real estate than Hurricane Harvey. The drop in oil prices in 2014 led to vacancies in the office sector, but that sector recovered when oil prices started to climb in early 2016. The industrial sector has been resilient throughout the oil price movements.
“The industrial market is strong. It’s remained strong through the oil downturn,” Land said. “We’ve been below 6 percent vacancy rates for six years in a row, which is incredible, and it shows how diversified our economy is, especially as it relates to the demand for industrial space beyond the oil and gas industry.”
Executives who sat on a Houston Business Journal panel in March spoke of growth in professional, science and tech services, of a Houston that is becoming less dependent on oil and gas. “My clients from outside Houston think they’re going to get a deal (a bargain) because the oil business is struggling, but I haven’t seen what I would consider a ‘deal’ in four or five years,” Ginder said. “There’s space available, but there are no bargains down here, and I don’t see that slowing down.”
The threat of hurricanes on the minds of developers and companies considering setting up shop in Houston. They saw the damage from their televisions or laptops, and they’re wondering how it might affect their plans. “For people who were actively looking to expand into Houston, that’s the first question they ask when they tour any building – ‘What was the impact of the hurricane?’” Land said.
“For the majority of properties that weren’t affected by the storm, it’s a quick answer, and it’s actually kind if a badge of honor,” Land continued, “That’s the worst hurricane we’ve had and the majority of commercial buildings in the greater Houston area were unscathed by it.”
Marcus DiNitto is a contributor to The Business Journals. He is a Charlotte-based freelance writer and editor, specializing in content marketing and sports. He earned an MBA from the University of North Carolina-Charlotte. Connect with him on LinkedIn and Twitter.